London 07/06/2016 - Higher Chinese aluminium prices coupled with attractive premiums in southern China have sparked import interest in China over the past one or two weeks but this is unlikely to last following the drop in SHFE aluminium prices this week, sources said.
There was talk of a 40,000-tonne deal concluded on a cost, insurance and freight (CIF) basis into Huangpu in southern Guangdong last week.
"The trader who concluded the deal said liquidity is very good in Huangpu now. Anything that goes to that market is taken up very quickly," a Shanghai-based trader said. "The trader is earning the price differential between SHFE and LME prices and the premium in Huangpu."
She pegged the CIF Huangpu aluminium premium at around $100 per tonne.
A customer was looking for SHFE-registered foreign brands to capitalise on arbitrage opportunities after LME aluminium prices fell, a London-based trader said last week. The only foreign aluminium brands listed on the SHFE are Australia's Portland and Russia's Rusal.
After falling from as high as $1,686 per tonne late in April, LME three-month aluminium trended sideways around $1,531-1,582.50 between May 10 and June 3.
The trend in the SHFE's most active aluminium contract, meanwhile, was upward over May 10-2,- trading at 11,855-12,555 yuan per tonne, and May 26-31, when prices ranged between 11,900 yuan and 12,205 yuan.
But industry participants said the arb opportunity has closed this week after SHFE aluminium prices fell. SHFE aluminium for August delivery dropped to a one-month low of 11,605 yuan on Tuesday. It closed at 11,690 yuan, down 100 yuan from the previous day.
"The arb opportunity was very temporary as the window was open briefly only. We don't see a trend forming for aluminium imports," a Shanghai-based metals analyst said. "SHFE aluminium prices are under pressure now because market expectations are for Chinese aluminium inventories to rise from the end of June."
While Chinese aluminium market inventories have been falling since March, supply has not tightened to the extent that the market has to rely on imports, he added.
In China's five major markets - Shanghai, Wuxi, Hangzhou, Gongyi and Nanhai - aluminium stocks have fallen to 457,000 tonnes as at May 26, down around 51 percent from the first half-half peak of 928,000 tonnes in the week of March 14, according to Shanghai Metals Market (SMM).
There were many buyers for imported material who had bought in a rush a few weeks back but, now that SHFE aluminium prices are falling, buyers have dried up, a second Shanghai-based trader said.
"Those who had bought earlier on are looking to sell in the market now but with little success," he said.
Some market participants are also averse to foreign brands because they are uncommon in the Chinese market and could prove difficult to sell, a third Shanghai-based trader suggested.
"Chinese users are more used to domestic brands. It is difficult to set the premiums for foreign brands as they are not widely used here," he said.
China imported 19,078 tonnes of primary aluminium in January-April, down 52.3 percent year-on-year.
(Additional reporting by Meimei Qin, editing by Mark Shaw)